Charter Hall flags $100m expansion in education centres

The early learning centre purchase, worth $75.5 million, will be funded through a capital raising of $100 million, at an issue price of $3.35, with an additional $5 million through a unit placement.

Charter Hall, led by chief executive David Harrison, inherited the education trust after its takeover last year of Greg Paramors’ Folkestone business.

Once the transaction is complete, the trust will have 426 properties valued at $1.1 billion in prime, mostly inner-suburban, locations across Melbourne, Sydney and Brisbane.

In an investor presentation for the raising, Charter Hall’s Nick Anagnostou, head of social infrastructure, said the purchase price is underpinned by strong embedded land value and the acquisitions will complement and accelerate the education trust’s development pipeline by adding quality centres.

Under the deal, there are two completed centres; five centres to be acquired on completion, which are expected to be completed between April 2019 and July 2019; and six fund-through development centres that are expected to be completed between November 2019 and March 2020.

In Melbourne they are located at West Footscray, Elwood and Keysborough and in Sydney there is one at Coogee in the south.

The trust is reiterating its previously announced full-year 2019 distribution guidance of 16¢ cents per unit and has provided an indicative full year 2020 distribution guidance of 16.5¢-16.6¢ per unit implying a distribution growth of 3.5-4 per cent.

For the half-year to December 2018, the trust reported a net profit of $21.1 million, up 1 per cent on the previous corresponding period.

Shaw and Partners’ senior analyst Peter Zuk said, post the trust’s half year results, that the relatively flat result on the previous period was due to the impact of asset sales and the timing of development income from completions.

Mr Zuk said like-for-like growth was 2.6 per cent, with only limited market rent reviews at nine properties in the half resulting in a 7.8 per cent increase on prior rent.

“Shorter-term, there are limited expiries, so we do not expect market rent reversion to have much impact on earnings in the second half of the 2019 year and full year 2020,” Mr Zuk said.

Charter Hall education trust suggested that income growth will be the biggest driver of childcare asset values going forward.

“Investor appetite for “A-grade” childcare assets with strong lease covenants apparently remains strong. The trust noted an average yield of 5.9 per cent was achieved on $410 million of market transactions in eastern Australia and New Zealand in 2018,” Mr Zuk said.